Monday, June 18, 2012

Guest Post: Let's do Lending Club night!

Today, I have a special guest writing about her experiences with Lending Club. Her post about setting up Lending Club date night is so compelling that I postponed my previously planned post to later this week.

Let's do Lending Club night!

by Mrs. Random Thoughts
"I enjoy the process and feel empowered."
For those who are looking for data and graphs with another interesting analysis by Mr. Random Thoughts (RT), sorry to disappoint you. No data nor analysis in today’s post. This is my perspective and experience with Lending Club investment.

Next scheme?

When Mr. RT mentioned about Lending Club investment a few months ago, I was like, “hmmm, sounds like new scam” and did not believe him. Then, he pointed me to the post 10 Things You Need To Know About Peer to Peer Lending on The White Coat Investor blog. I thought “well, if smart guy like this doctor is doing this, it must be worth a try.” See, how much confidence I have in Mr. RT! I consider myself better-than-average-financial-savvy, experienced with stocks and options investing and a Quicken addict. After I understood the concept of P2P lending, I jumped into Lending Club investment with Mr. RT.

Lending Club night

As a married couple, we are pretty transparent about how we spend money. We know how much we have, set the financial goals together, and discuss how we invest. Hence, selecting P2P loans and purchasing notes  have naturally become "our" activity. This is how we started “Lending Club night." What a geeky couple!

We usually pick one night a week and call it “Lending Club night”. On that date, after dinner, Mr. RT downloads the available loans spreadsheet, reviews the data and filters out loans for possible investment. The number of candidate loans is no more than 10, usually 5 to 8. Then, I sit next to him, review and give my opinion on each loan.

Listen to me or ...

Mr. RT has already selected pretty reasonable notes at this point by filtering quantitative data. Then, we look into qualitative data; i.e., where the borrower works and lives, purpose of the loan, etc. I also learned some tips from other blog posts such as P2P Lending For Extra Retirement Income and 7 Ways to Increase Your Return at Lending Club to back up my own views. So, our discussion on selecting notes sometimes lead to new findings.

For example, Mr. RT thinks that loan for building a pool as home improvement is bad. He considers having a pool at home a luxury and unreasonable. Yes, it is most probably true for people living in Seattle. But for people who can enjoy summer weather for a long time, like people living in North Carolina, for example, having a pool may be a part of upkeep of backyard as home owner. It is very reasonable upgrade cost and will increase home value. So, I convince Mr. RT to invest in this type of loans.

Be consistent even if ...

Where people work and how much money they  make provide good decision points. We tend to agree on quickly loaning out to people working for name value companies or for city, state, and government organizations. Too much advertisement from applicants, meaning flowery comment, does not work for me. It often seems to me fishy and suspicious.

I carefully read those comments and answers to the questions. Sometime these expose inconsistent information or lack of common sense. Hmm, how can this seemingly rich borrower wants to borrow the amount of money that he or she should be able to save in a few months with his or her income. If it's true, does he or she lack discipline? Or, how can this borrower with low income living in NYC pay back loan? These type of questions always come to my mind while reviewing loans. I enjoy such discussions with Mr. RT.

Finally, on to something

Time to time our selected loans are not approved or expire in the end. So, I feel rather assured that Lending Club does background check of borrowers diligently and does not approve some loans even after being fully funded.

Our investment at Lending Club is getting bigger, even though slowly as each note is only $25. Also, Mr. RT is excited about seeing 10%+ interest. Unlike him, I don’t count much on this investment, rather I enjoy the process and feel empowered.

Only concern I have is that filling out tax form. As I do taxes for us, I’m afraid of ending up entering all gain and loss for small investments. Then, I’d be happy to give that privilege to Mr. RT.

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